Outside Markets as of 5:50am: Dollar Index down 0.0850 at 80.5790; Euro up 0.00090 at 1.36080; S&P’s are down 0.75 at 1925.00; Dow futures are up 4.00 at 16,722.00; 10-yr futures are up 0.15%; The Nikkei closed up 0.08% at 15,079.37; The DAX is down 0.05% at 9,921.51; The IBEX-35 is up 0.23% at 10,780.60; The Russian MICEX is down 0.41% at 1,469.73; Gold is unchanged at $1244.30; Copper is down $0.20 at $309.10; Crude Oil is down $0.30 at $102.34; Heating Oil is up $0.0064 at $2.8545; Paris Milling Wheat up €0.75 at €192.00/MT.
Very quiet financial markets this morning ahead of the European Central Bank policy decision later this morning. Most analysts think the bank will provide a variety of growth measures to stimulate growth after a string of disappointing economic data which suggests the EU is slowing more than anticipated. Sentiment in the US ahead of tomorrow’s nonfarm payroll data has also soured slightly following yesterday’s release of the ADP private payroll data which showed employers adding 179,000 workers to their payrolls, well short of the 210,000 expected and the weakest hiring in four months. The consensus estimate for tomorrow’s nonfarm report is 215,000 jobs added. Today will see weekly unemployment claims released which are expected to show a 10,000 increase to 310,000. Continuing claims are seen at 2.625 million, down 7,000 claims.
Heavy showers rolling across S-NE and KS this morning with additional precip falling in the Red River Valley of the Northern Plains. Rains moved through most of W-SD last night bringing light totals to most locations, while a sizable system finished up in the ECB as well. When one stops and looks at the past 7-day accumulated precip, the constant talk of “ideal weather” becomes clear. As the map below shows, almost every area which grows corn in the corn belt has received 1.00”+ in the last week with several in the heart of the corn belt receiving upwards of 3.0”. Additional precip is expected over the weekend with the heaviest rains to fall in the southern Midwest and southern Plains. Most of KS is slated for 1.00-5.00” of rain. The Northern Plains will also see additional precip in the 0.50-1.00” range. 6-10 and 8-14 remains ideal with below normal temps and above normal precip forecast.
Mixed, choppy trade overnight with most contracts seeing two-sided trade. Hard to know exactly what to make of yesterday’s session in which healthy early-day gains were given up in favor of lower closes in corn, and marginal gains in wheat. Corn continues to struggle with the dichotomy of strong old crop demand and cash basis, yet ideal growing conditions for the new crop. Each day the board drifts lower, cash corn basis firms further. The apparent exodus of managed money longs out of corn is making the task of securing physical corn supplies by end users rather difficult. As happens occasionally in our markets, there is plenty of paper selling, but a real dearth of physical selling. The former doesn’t crush well into ethanol or bacon strips. Weekly ethanol data and monthly April import data released yesterday were both supportive influences to row crop prices.
Cash corn markets firmed further yesterday with PNW corn shuttle premiums inching up another 2c to +112N for JJ and +115U for Aug, and compares with +100N a week ago. FOB UP Grp-3 basis firmed to +3N vs -3N a week ago, and HETX held at +90N vs +81N a week ago. Destination ethanol basis is also sharply better than a week ago with Cedar Rapids posting +3N vs -3N a week ago, and ADM-Marshall around a nickel better over the last week. Ingredion corn basis is up 5c w/w to +15N for shipment by June 15th. CIF bids are actually steady vs a week ago. The aforementioned, while battling the index fund roll, is having a positive effect on spreads with the CN/CU firm overnight o +5.75c, up 1.75c, while the CN/CZ is up 2.75c overnight o +5.50c. The new crop size proxy of the CN15/CZ15 does continue to weaken, suggesting the market is cognizant of the good growing weather. That spread is trading +12.75c overnight, off from its high-water mark of +28.75c on May 7th and off from +17.50c on June 2nd.
Weekly ethanol production continues to roll along, posting the 2nd highest weekly production of 2014. 935,000bbls/day were averaged last week, up from 927,000bbls/day the week before and well better than the 896,000bbls/day needed to reach the USDA’s ethanol demand for corn estimate. Stocks have been on the rise, however, with last week showing a 761,000bbls build to 18.25 million bbls, the highest stocks level since March of 2013. While margins remain excellent, this build up in stocks may temper production ideas, and could possibly keep the USDA from increasing their marketing year corn-for-ethanol estimate of 5.050bbu. With gasoline demand continuing to run near the higher end of the 5-yr range, however, it is plausible these stocks levels will begin to draw down in coming weeks.
April census import data was released yesterday during the session, and while old news, was viewed as supportive for the soybean market. During the month of April, the US imported 7.1mbu of soybeans, well below ideas of 10-12mbu. This places increased importance on imports rising May-Aug in order to justify the USDA’s record soybean import level of 90mbu during the 13/14 marketing year. In order to hit the 90mbu target, imports will have to average 14.88mbu/mo May-Aug vs the highest month on record of 12mbu in July of 2013. It seems as though each time we think the US soybean balance sheet has the right to take a breather, we throw additional bullish data at the market. Without record imports, our balance sheet doesn’t work to get us to September 1st. Crush margins remain strong relative to a year ago, and beans continue leaving the country on a weekly basis.
The wheat market can’t seem to catch a break with news from Reuters yesterday Egypt had relaxed a tough rule on wheat imports which could promote more sales from France. In January, Egypt imposed a moisture content specification which excluded French wheat from GASC’s tenders, but the grain buyer said that specification has been eased so Egypt can take advantage of the plummeting wheat price. The moisture spec was dropped to 13.0% in January, while the average moisture content of the 2013 French wheat crop was 13.5%.
Reuters also carried an article this morning talking about Argentine farmer hoarding, and the possibility of increased soy sales in June/July to repay farm loans. Government figures show growers have sold 33% of the current soybean crop vs 36% in 2013 and 48% on average over the last four years. Argentine farmers are also battling a low-protein crop this year which is making hitting soymeal specifications difficult. Argentina is the world’s largest exporter of soymeal.
As discussed on wheat yesterday, corn is really without solid technical support until the January lows around $4.20 basis July and $4.35 basis December. On-Balance-Volume continues to head deeper into negative territory, a sign volume is firmly on the side of the bears, and open interest has been rising on the most recent leg lower from May 22nd. A lower close this week will mark the fourth straight week of lower prices, and July corn would need to mount a rally over $4.82 in order to flip trends back up and give any confidence about a near-term bottom being in. Friday’s Commitments of Traders data should show continued paring of managed money longs, but until they see a weather threat it will be difficult to turn them into buyers again. The old crop demand story, however real, isn’t tangible enough to fund managers the way weather forecasts are. Trends remain down.
Export sales estimates to be released this morning are expected at -100/+150TMT on old crop wheat, 200-650TMT new crop. Corn is seen at 300-650TMT old, 50-240TMT new. Soybeans are seen at -125/+100TMT old, 500-1,050TMT new. Meal at 0-215TMT old, 25-220TMT new. Oil at 0-25TMT old, and 0-10TMT new crop. Some of the ranges on these estimates are so ridiculous I’m not sure why they’re even reported some weeks.
Bottom line: A broken record we have, but until the tune changes it’s what the market wants to sing. Ideal growing conditions, expanding southern plains wheat harvest, large global wheat crops, still healthy fund longs and terrible chart action. The supportive influences of strong cash markets, solid end user margins and a lack of soybean rationing just aren’t enough to turn the tide just yet. We need a weather threat, and today we don’t have it. Still a long way to pollination, but it’s going to feel like it if this board action continues.
Good Luck Today.
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